Intel Risks It All (Again)

When Paul Otellini, Intel's famously reserved CEO first heard the news, he got quiet. "The madder I get, the quieter I get," he says, an important footnote for any Otellini user manual. He was hushed via press conference by Neelie Kroes, the European commissioner for competition. "Intel used illegal anticompetitive practices to exclude essentially its only competitor and thus reduce consumer choice in the worldwide market for x86 chips," Kroes read last May from the 542-page decision on an antitrust case charging Intel with unfair trade practices. The fine: a record 1.06 billion euros, about $1.45 billion U.S.

Kroes ended pointedly: "Finally, I would like to draw your attention to Intel's latest global advertising campaign, which proposes Intel as the 'Sponsors of Tomorrow.' Their Web site invites visitors to add their 'vision of tomorrow.' Well, I can give my vision of tomorrow for Intel here and now: Obey the law."

For Sean Maloney, then Intel's chief sales and marketing officer, Kroes's parting shot was a cheap one. "That was almost the most emotional thing about the whole day," he says, his face a storm cloud. "We were bracing ourselves for what was going to happen, and then this sarcastic remark." He makes a motion with his hand, a knife twist in the air.

Chipzilla, as Intel's snarkier critics call it, has a decades-long history of high-stakes litigation, first defending against the Japanese in the 1970s, and lately going toe-to-toe against Advanced Micro Devices. It was former Intel CEO Andy Grove — decidedly not quiet when angry — who was famous for his "silver-bullet test": If you had only one bullet left for your competitors, which one would you shoot?

But to Otellini and Maloney, who was recently elevated to executive vice president, Kroes's slap about the ad campaign had a particular sting. To be on the losing side of a billion-and-a-half-dollar judgment — which they are appealing — is a blow. But to Intel insiders, the ad campaign already signals a new kind of Intel — no less ambitious, but more collaborative, more sympathetic, more human. And greener too. Their past may still haunt them, but the path they are on is far, far different.

Grove famously bet the company on a new chip architecture in the 1980s; Otellini has bet a now far larger company on at least as dramatic a shift — without explicitly calling attention to it. Since Craig Barrett term-limited out as CEO in 2005 (Intel chiefs must retire at 65), Otellini has been subtly remaking the company: aligning with Apple, in a step away from the company's PC-only heritage; pushing the Atom mobile chip, in a dogleg pivot from Moore's Law, the founding axiom behind Intel, that chips get exponentially faster; and embracing new territory, new markets, and new ways of playing with others. The goal is to better compete in a world in which computing is everywhere, from laptops to tractors. Maloney, Otellini's right hand, whose sphere grew dramatically in the company's recent restructuring, has been crisscrossing the globe to tap the deep wellspring of cash that is worldwide government stimulus money. And this past winter, Otellini decided to sink $7 billion into U.S.-based manufacturing, just as other businesses outsourced to limit costs.

There is no better prism through which to see Otellini's reengineering — and his spur to action — than that ad campaign. "I was seriously worried about the timing," says Deborah Conrad, Intel's branding chief. Launched just a few days before the EU announcement, it is Intel's boldest new marketing effort in 15 years: a series of clever — and, yes, funny — commercials emphasizing not Intel's products, but the people who make them. In the first spot, a geeky engineer, the inventor of the USB, struts into a shiny lunchroom and is accosted by fawning autograph hounds and love-struck women. The punch line: "Our rock stars are not like your rock stars." Despite Conrad's concerns, the ad quickly racked up millions of YouTube views, inspiring fans to create T-shirts with the engineer's likeness and prompting a flood of résumés to Intel HR.

For all the economic turmoil, Intel has been delivering: After a brutal 2008, when net income was down 24% from the prior year, the chip maker managed $9 billion in gross revenue for the third quarter of this year, up nearly $1 billion from the previous quarter, beating estimates by a half-billion dollars. Investors are noticing. At press time, the share price flirted with its 52-week high, up 36% for the previous six months.

Otellini, an Intel lifer, is not just an agent of change; his ascension is also a sign of this transformation. He is a marketer, not a technologist, in a company of engineers — "though I am a product guy," he asserts, "and I understand and get a kick out of what we make." Otellini has rethought everything from recruiting to leadership training. "The world has changed," he says. "We want talent that reflects that." In a mostly male and engineering-driven culture, he has paved the way for other types of leaders to blossom; there are now more women vice presidents and nontechnical fellows (a special designation, like a corporate emeritus position). He has added ethnographers to study how people around the world use technology, and doctors to help develop medical technology.

These bold moves are gauged to save the company from the generational decline that all tech titans eventually face. The bigger you become, the less likely it is that you'll be able to get in front of the next big thing, something that IBM, Xerox, AOL, even Microsoft know all too well. If Otellini has bet correctly, Intel is positioned to come out of the recession stronger than before — EU be damned.

To visit the fifth floor of the Santa Clara, California, home office, the Intel version of an executive suite, is to step into the storied history of the company. To one side is Grove's cubicle, now mostly stripped of his tools of war; a copy of his autobiography sits atop his desk, strategically placed to power-smile at passersby who peek in. Next to that is Barrett's corner, which has a more lived-in look; he retired from the board only last May. On the other side, Otellini's and Maloney's more-expansive work spaces form a right-angle command center. Maloney's is an explosion of books, papers, photos, and mementos. ("Oh, God," Maloney moans, when I mention having seen his office. "If you think that's bad, you should see my car.") Otellini's is tidier; an outside wall displays a gift from Paul Venables, the adman behind the new branding campaign: a takeoff on Intel's rock-star ad, with pictures of the two Pauls and the copy, "Our Paul is not like your Paul!"

When I sit down with Otellini for the first time, in a conference room on the fourth floor, he makes a poignant observation: He may very well be the last CEO to have worked for all four men who ran the company. "There is very much a sense of a torch passing," he says. He talks about the Intel of the chip wars in the '70s, when everyone worked a dozen hours or more, then guzzled beers and planned the next day's battle. That was the Intel before marriage and kids, when Japan, not AMD, was the big threat, when making a mistake with your manufacturing capacity or your server architecture could take years to correct, putting the bullet in your own head.

Unlike the famously open Grove, Otellini eschews the media spotlight, doesn't write books, and prefers not to talk about himself or his family. "I think very few companies are the culture of one person," he says. "Apple may be the exception." Otellini compares himself to Grove only obliquely. "When Andy was yelling at you, it wasn't because he didn't care about you. He was yelling at you because he wanted you to do better," he says. "I just think there are different ways of motivating people in today's workforce."

Talking about leadership, he volunteers, "I'm on the board at Google and I've watched them go from startup to 25,000 people, and it's no longer the culture of Larry and Sergey." I lean in, poised to ask for more details, but he gently signals with an almost imperceptible wave of his hand that, sorry, he's not going there. Later, he says that he believes he can predict the success of tech CEOs in the Valley by separating the ones who "get product" from the ones who don't. As I lean in again, a smile and the hand. So civilized.

In Intel vernacular, Otellini is a "carpet dweller," the mildly affectionate, mildly pejorative term for the nonengineering suits who populate the home office. Carpet dwellers make deals, not things, and for a company that rightly prides itself on the things it makes, Otellini's status was a problem when he first became CEO. "There may have been some rumbles," he concedes.

He took over at a difficult time. Barrett had left the company with a flagging share price and a mess of new product extensions gone so wrong that he literally dropped to his knees at an industry gathering in 2004 and begged forgiveness. "The first two or three years of my CEO tenure were not what I thought they'd be," Otellini tells me. "We had to downsize the company significantly, restructure; we went through some very painful things." He drew on advice from Grove. "Andy told me, 'You will not believe how long it takes to turn the supertanker,' " Otellini recalls. "When you're the third-line manager, you say 'let's go left' and people move. When you are running a 100,000-person organization, it takes a long time for the back of the supertanker to catch up to the bridge." Which was frustrating for him. "It means you have to repeat where you're going and why a thousand times," he says. "And that's not something I was conditioned to do."

Every Intel CEO makes at least one big bet, he tells me, and his was on the Atom mobile chip. Otellini had to sell engineers on the notion that processor speed and PC products weren't going to be their only claim to fame — that convenience and ease of use in a wide variety of devices is also a goal. His quest was what he calls a new "use model" for computing. The poster child became the netbook, a product category that was spawned inside Intel and, even in the teeth of the economic downturn, grew sevenfold year-over-year in the first quarter of 2009. Intel came up with the term "netbook," and, according to Maloney, invested hundreds of people and thousands of hours teaching retailers what netbooks were and how to sell them. "What we've learned is that new category creation is the single most difficult thing in high tech," Maloney says, sounding every bit the carpet dweller. As his team labored over what to call the new gizmo, some engineers remained skeptical. "I suggested 'chickbook,' " smirks Mooly Eden, the techie who led the Centrino chip team. When I tell Otellini, he bursts out laughing: "That was not a name that made it to me."

He can afford a chuckle because the Atom has done far more for Intel than just launch the netbook. It has turned into an ideal product to go inside anything that wants to talk to the Web — from smartphones to MRI machines to vehicle navigation systems to cash registers. Today, some 90% of ATMs contain the chip. "Atom opened up a whole new set of things because it creates mobility," explains Doug Davis, vice president of Intel's embedded computing group. Companies looking to adapt the Atom to their needs even began contacting Intel salespeople asking for help. "It would never have occurred to us that a sewing machine would need the Internet," Davis says, referring to what his team learned from purveyors of industrial machines that download specialty patterns and logos. "There's even an Atom chip in a tractor." Soon, a collaborative system evolved into an open platform, built around the Atom, that's reminiscent of the Facebook developer network: a Web site where customers can get support, product information, and access to motherboards that third-party vendors are building. "We now have 1,500 new 'design engagements,' " says Davis, of the new product lines in the works. "This is unprecedented."

Sean Maloney is inhaling yogurts, one after another, talking animatedly all the while. "Do you want an international story?" he asks, grinning. He doesn't wait for an answer. "You should study the Chinese and social security. They're thinking it through. Trust me, they are going to get it right." We are meeting for breakfast in San Francisco a few days after his return from his sixth trip to China in the past 12 months. He spent the mid-'90s based in Hong Kong, running Intel's sales and marketing activities across Asia and the Pacific Rim. He'd emailed me when he was overseas about China's command and control in the time of swine flu. "They take our temperature every time we go into a government building," he wrote playfully. "Their economic recovery efforts are going quite well, but then again, there isn't a lot of debate over there." At breakfast, he's still nursing a non-H1N1 bug, yet he managed a brisk 20k bike ride along the Bay before our meeting. "I need carbs," he grins, cracking open his third and last yogurt.

Intel, he tells me, has negotiated a Memorandum of Understanding to work with the IT center of the Chinese Ministry of Railways on a massive high-speed-rail project. "It will be more than 40,000 kilometers, by far the largest high-speed railway in the world," he says. Trains traveling up to 300 kilometers an hour will connect the soon-to-be-Wi-Fi'd countryside (also an Intel production) with the city centers. All rail will lead to Beijing.

Maloney expects it to be pricey: "Ten times larger than the $30 billion Three Gorges [hydroelectric dam] project in terms of capital spend and completed in one-third the time." Expect lots of chips, yes, but also teams of Intel engineers on the ground working on everything from hardware configuration to specialized software development — along with the company's first chip-fabrication lab in China, scheduled to open in 2010.

Maloney, like Intel, does more than 70% of his work overseas and has become an avid student of global stimulus packages. It's where the money is. "Look at aggregate private- versus government-sector spending around the world. There is a higher percentage coming from governments in the next five years," he says. Projects in health care, transportation, construction, energy, education, and broadband are shovel-ready, and, he's convinced, Intel-ready. He sees the world as a series of desktops, laptops, and mobiles run by cool, fast servers and chip-rich grids. "We're looking at significantly more than $3 trillion worldwide in a one-time spend," he says of global stimulus projects.

Maloney embodies the ascendance of a marketing mind-set at Intel. The company is hardly abandoning its tech bona fides — after all, it's the engineers who are the rock stars in the new ads — but under Otellini, the culture has opened up, rather than focusing relentlessly inward. Maloney is obsessed with looking out. "How can you educate people in 700,000 villages in India without broadband?" he asks, eyes shining, not waiting for an answer. "You can't." This is where Maloney excels as a salesman; he paints a picture of something bigger at work and makes you believe that everything good in the world — better health; cleaner air; happier, more educated people — depends on technology. His technology. "We're talking a night-and-day difference." He bursts into a smile.

I meet Deborah Conrad for a sushi lunch off of New York's Times Square in June. She marvels that what was once a traffic nightmare is now filled with delighted people lounging in ironically retro lawn chairs. "It's so much more fun now," she remarks. "It was such a simple change to make. And everyone seems so happy."

The rebranding she has shepherded has some parallels with Times Square. "We had become a bit of a mess," she says. The tangle of Centrinos, Pentiums, Cores, and Extremes was its own version of the old Times Square bottleneck. Every iteration of a chip got its own name, and every detail of how every chip was marketed was rigidly controlled — down to where the Intel Inside sticker goes on the machine, where the logo appears in an ad, even where a company rep would stand on stage during a joint product road show. "We were looking," she says, "for a fresh take."

When I meet her again a few weeks later in her Santa Clara office, she talks about the way the alliance with Apple was a turning point for Intel. Like many people who work with Jobs & Co. and live to tell the tale, she occasionally grinds to a halt in mid-anecdote, chastened by a vision of future repercussions and recriminations. "Of course Apple thought ... well ... I don't know ... I suppose I shouldn't speak for them."

In the B.A. era — before Apple — "we had a very specific model for how we did cooperative and joint marketing with computer companies," Conrad explains. "With Apple, it's a totally different set of rules." Their bat, their ball, their game. "Apple doesn't do comarketing or cobranding with anybody." Nor will the Apple folks tell their partners what they plan to do. "We were either going to learn to trust them to do a good job with the product and our brand, or we weren't." So everything you wanted to do or know, they just said no? "Yes, exactly!"

With encouragement from Otellini and Maloney, Conrad — who was the lead liaison between the companies' engineering and marketing teams — flung the doors open, even allowing Apple to film in Intel factories without any idea what it was going to do with the footage. "I said, 'Yeah, don't worry about it, it's going to be great!' " she recalls. "But it was scary."

This collaboration with the famously uncollaborative Apple paid off, though. The Mac with the Intel chip was delivered six months ahead of schedule; the Apple ads were both beautiful and respectful of the Intel brand; and the response from other marketing partners was immediate. "Suddenly everyone wanted to be more creative with our assets," Conrad says.

Intel decided it needed to be more creative, too, and set out to re-visit the Intel Inside program. Conrad made the rounds to ad agencies, explaining how important Intel's technology is to every part of everybody's lives. But when she met with Paul Venables at Venables Bell in San Francisco, he ripped the needle from the record. "I said, 'Really?' " Venables tells me, from his office hard off of Union Square. "You look at every tech company since the salad days of the dotcom boom, and they all take credit for my wonderful existence, every minute of the day." He ticks through the list: computers, mobile devices, set tops, keyboards, software, interfaces. "All that between me and the chip? I think it's a commodity." The Intel folks stared. "Yeah, the air went out of the room," chuckles Venables.

Venables's team then pieced together clips from 20 current tech commercials: beautiful children, languid landscapes, towering cityscapes at sunrise, and, for some reason, lots and lots of flying birds. The commercials were all telling the same message: that the world is changing and technology connects us all in new and powerful blah, blah, blah. "I couldn't believe it when I looked at it," Venables laughs. "What's with all the birds?" His team combined the clips with hilariously earnest text deconstructing the imagery and mocking the birds, creating a Saturday Night Live version of a tech ad. After showing Conrad the mock ad, he sprung a new vision: Intel's great differentiator was its people. The concept won Conrad's heart. "Paul was absolutely right. We were just not accustomed to turning the attention to ourselves in that way."

Nor was Ajay Bhatt, the shy Intel engineer who created the USB. (The actor who plays him in the TV spot won a sitcom role for his efforts, Otellini says.) "My wife said, 'Take your name off this, are you crazy? This is not you!' " laughs Bhatt. "But I decided to trust Deborah." Venables personally sold the concept of the Bhatt "rock stars" ad to Otellini by acting it out for him in his office — and then again for the Intel board. "I did the whole double-point shtick and everything," Venables says, re-creating the character's signature move.

The experience was liberating — Intel's engineers have gotten a boost of pride from the campaign, and consumer response has been viral. And it spawned other liberation efforts — notably "freeing the bong," as Conrad puts it. In Intel-speak, the bong is the five-note tune that has long footnoted every TV ad featuring Intel products. Austrian composer Walter Werzowa had accepted an assignment to evoke "innovation, troubleshooting skills, and the inside of a computer," while sounding "corporate and inviting." In under three seconds. Werzowa, who had never heard of Intel, had his breakthrough by singing the words "Intel inside" repeatedly. But, 15 years and a gazillion bongs later, "it had become background noise," asserts Venables. "The most useless asset in the history of assets."

Conrad embraced the opportunity to reimagine the tune, and the Venables ads finish with a crowd of "employees" singing it straight to the camera. A quick YouTube search will now turn up dozens of amateur bongers, some employees and some not, mangling Werzowa's tune and having fun. Even Dell has gotten into the act. The computer maker had been running a laptop ad featuring actors singing "Lollipop." It asked if it could instead sing the bong. "Our legal guys said, 'What? Are you crazy? It's our asset!' " Conrad recalls. She told Dell yes. "Free the bong!" she exults.

The legal guys are now busy with bigger things, like that $1.45 billion fine. "I know we don't do the things we are being accused of," Otellini says of the EU judgment. Intel is appealing the decision, and he points out that so far the company hasn't had its day in court. The documentation includes emails, some of which were released by the EU in mid-September. At issue is whether the company offered computer makers and a retailer hidden rebates and other incentives to favor Intel x86 chips over AMD's. "You can get 150 million emails from us and God knows how many from everyone else, and you can always find something somewhere," Otellini says. So even as he is trying to open up the company in some ways, he expects to tighten documentation standards. "One of the things that we're accused of is that there must have been something else, other than the contract. Well, there wasn't something else. We are going to write in our contracts that there are no other clauses." Intel's legal strategy may be complicated by the September departure of general counsel Bruce Sewell to Apple.

The subtle balance between encouraging collaboration and protecting against lawsuits is just one of the risks Otellini has to manage. When he made the unusual decision to travel to Washington, D.C., early this year to announce his $7 billion bet on U.S. manufacturing, "no one knew where the bottom was [in the economy], and there was a lot of uncertainty," he recalls. The business case for U.S.-based facilities may not have been clear to others, but to Otellini, it's right out of the Intel playbook: If the company controls manufacturing, it can control quality. "Now, we're going to be a generation ahead." He had another motive, too: "I wanted to get the attention of the government and to send a message to other companies that Intel was investing in the United States at a time of great uncertainty, and that we should reinvest together in the infrastructure of the country." If this was a considered effort to improve Intel's standing for future infrastructure projects, it's not one other companies have picked up on. The response from other business leaders, he says, has been mute. "On the other hand, the President called and said that it was the only piece of good economic news since he'd been inaugurated," Otellini says.

I try to get Otellini to share his assessment of Obama and the job he's been doing. All I get is the hand wave. Maloney, however, isn't shy about sharing his opinion. His face darkens and he wrinkles his nose slightly at the U.S. efforts at stimulus. "It's gone pretty well, considering," he says unconvincingly. "If you're going to spend $100 billion on new railroads or roads, getting your whole population on broadband is cheap." He talks about those who may be left behind without Wi-Fi and mobile access. Then he erupts: "You can get everyone in the U.S. connected on what you'd spend bailing out a third-tier failing bank!" Instead of the Otellini hand wave, Maloney brandishes a fist. "Countries need to have that kind of ambition! There is no excuse for not getting everyone connected. None!"

Otellini is just 59 years old, which means he has six more years before he has to retire. He has put Intel on a more stable path, downsizing in advance, streamlining and focusing the product portfolio, reorienting the culture to an evolving global world. His latest restructuring cleared the decks so he can focus less on day-to-day management and more on blue-sky growth; chances are, he, like Maloney, will spend more time on the road.

In the midst of Otellini's photo shoot for this article, the photographer halts the action as the rock-star ad begins playing on a nearby screen. The photographer and his two assistants laugh and nod as "Ajay" struts his stuff. "This is the commercial I was telling you about," the photographer exclaims, as Otellini watches them watching the ad. Bong. Applause. "Cool!" says the photographer as he picks up his camera again. Otellini throws me a smile. "We think so."

Photographs by Jim Wright

A version of this article appeared in the November 2009 issue of Fast Company magazine.

Add New Comment

9Comments

This is the biggest self-serving fluff piece I've read in a long time. Yes, Intel did get it right with the Netbook and their technology is superior. But this article only highlights the problems I've seen for years from them ... they are too internally focused. And when it comes to use cases, they cannot think out of the box. Netbook was a good concept, but it wasn't their product focus or customer focus that got them there. They just plain lucked out. Their product teams are so internally focused that not only do they not have a clue how their chips are applied in a meaningful way, they don't really care either. And they'll strike out thousands of times, before they get that one success like they had with the Netbook. The internally focused ad campaign only confirms this self-serving culture. And hearing people who had just been laid off from Intel in 2005, 2006, referring to Intel and themselves together in the same sentence as "we", as if they still belonged to that culture was really sad. Even though they had been laid off for weeks or months. Very sad. I had to keep reminding these people that they didn't work for Intel anymore which was like telling my grandmother that Jesus didn't exist. Sad. But very indicative of the cultural issues and brainwashing that occurs there.

Competition is the first requirement in progress of any industry. Monopoly in a particular field makes the work dull and people have to follow out dated ideas for years together.The same thing happened with Intel. The insider story about the ups and downs for Intel gives the idea of the great working spirit of its CEOs and their innovations from time to time. The punch line”Our rock stars are not like your rock stars” created a miracle. CAAS

Please, this is just a fluff piece kissing Intel's butt. Don't tell me how much they are worried about Americans and the maufacturing infrastructure as they sent thousands of maufacturing jobs overseas. This year, they closed the factories in Colorado Springs, Santa Clara, and other sites(I used to work at D2), putting thousands of middle class Americans out of work, who had given decades of hard work, while opening a $450 million dollar technology Campus in India and Five new production facilities in China. So much for quality control. As a fellow person of Irish descent, Mr. Maloney has been given the gift of gab, as it this article proves. However, now I would like to see him put his money where his mouth is, stop outsourcing and re-invest in America. The Europeans protect their prime industry manufacturing and so should we. Intel has always been famous for thinking outside the box, now they are just following the herd overseas.

Intel's done a lot of great things and doesn't always deserve the hits to their reputation - but the ads declaring Ajay Bhatt as the inventor of USB are conceited. USB resulted from a 3-way collaboration between Intel, Microsoft and Compaq, with a team of people, and it would be both gracious and honest for Intel to share the credit with their partners.

Congratulations! I love the ads for Intel. They always get a hardy laugh out of me! I think it’s great to put real faces with the product’s innovators; they are truly the stars behind Intel! Intel has become a more humanistic, green, and innovative company, which all starts at the top! My future is anything with "Intel inside". I wish them the best with not only their original and creative ad campaign but also the refreshing new outlook of the whole Intel team!

I think the story of the Atom needs to be told in greater detail. How often is it - as you've rightly pointed out - that a company introduces a product that's CONTRARY to their philosophy with everything they've done so far, and that product becomes a run-away success? An Atom in a sewing machine? Awesome.

Honestly, I think the EU needs to get a grip. I'm beginning to wonder about them and all the huge fines they're handing down these days.

I haven't really followed this particular case that closely, but the EU seems to be cracking down hard on anything that even appears to be a monopoly. And the targets often appear to be US companies.

Don't get me wrong, I like having options... but sometimes I wonder if it's not just a case of the European socialist roots coming through in their decisiones... perhaps a lack of tolerance for "free market", competition, and survival of the fittest.

Re: "If the company controls manufacturing, it can control quality. "Now, we're going to be a generation ahead." He had another motive, too: "I wanted to get the attention of the government and to send a message to other companies that Intel was investing in the United States at a time of great uncertainty, and that we should reinvest together in the infrastructure of the country.""